Teck megadeal, Cengage, Realogy, EMI price, Gogo gone; steels gain; funds lose $562 million

By Paul Deckelman and Paul A. Harris

New York, May 26 – There was just no stopping the high-yield primary market on Thursday as it racked up its fourth consecutive session this week of big-volume new-deal activity, syndicate sources said.

Thursday’s total wasn’t quite in the same league as the more than $5.4 billion of new U.S. dollar-denominated and fully junk-rated paper that priced from six issuers in seven tranches – the second biggest-volume day seen so far this year, according to Prospect News data.

But it still produced an impressive $2.72 billion that got done in five tranches.

Canadian mining concern Teck Resources Ltd. had Thursday’s big deal, an upsized $1.25 billion offering of five- and eight-year paper. Traders said both tranches firmed smartly when they were freed for aftermarket dealings, with the fives in especially high demand.

Teck’s existing paper was also up solidly in the new issue’s wake.

Cengage Learning Inc., a provider of educational content and services, did a $620 million issue of eight-year notes, after downsizing the issue twice.

British music publishing company EMI Group came to market with $350 million of eight-year notes via a subsidiary, with the paper seen having notched healthy aftermarket gains.

All three issues came off the forward calendar. In the day’s lone drive-by offering, Realogy Holdings Corp., a real estate services provider, priced $500 million of seven-year paper.

Junk players were meantime surprised to hear that a deal that they thought was over and done with – Monday’s six-year offering from aviation communication services provider Gogo Inc. – was by no means a done deal, as the company was heard to have cancelled that $525 million offering before it settled.

Away from the new issues, traders noted strength in steel industry credits such as AK Steel Holding Corp. and United States Steel Corp. The steelers’ bonds and shares got a boost on the news that U.S. trade authorities had slapped heavy duties on imports of corrosion-resistant steel coming in from China.

Additionally, the federal trade body said it would open an investigation in to U.S. Steel’s separate claim that Chinese competitors had stolen its trade secrets.

Statistical market performance measures turned mixed on Thursday, after having been higher across the board on Tuesday and again on Wednesday. It was the indicators’ second mixed session in the last four trading days.

Another statistical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – was back on the downside this week for the third time in the last four weeks.

Sources familiar with the fund-flow statistics said that some $562.3 million more left those weekly-reporting-only domestic funds in the form of investor redemptions than came into them during the week ended Wednesday, in sharp contrast to the $1.135 billion inflow reported last Thursday for the seven-day period ended May 18 (see related story elsewhere in this issue).

Teck sees big demand

An active primary market saw four issuers complete an overall five tranches, raising a combined total of $2.72 billion on Thursday.

Only one of the four issuers came with a drive-by deal.

One issuer upsized its offer while one downsized, not once but twice.

And on the last session expected to see notable new issue volume ahead of the coming Memorial Day extended weekend, Thursday’s executions tended not to have the luster of some of those seen earlier in the week.

One of the five tranches came inside of talk. Three came on top of or in the middle of talk. And one came at the wide end of upwardly revised talk.

The notable standout among Thursday’s executions was Teck Resources’s upsized $1.25 billion of senior notes in two parts (B1/BB-).

It included $650 million of five-year notes which priced at par to yield 8%. The yield printed 25 basis points beneath the tight end of the 8¼% to 8½% yield talk.

In addition the company priced $600 million of eight-year notes at par to yield 8½%. The yield came on top of talk that had the longer maturity notes coming 50 basis points behind the five-year notes.

The two-part issue size was increased from $1 billion.

Demand was “ridiculous,” according to a portfolio manager, who added that the deal played to $12.5 billion of orders, with 225 accounts in the books of both tranches.

J.P. Morgan, BofA Merrill Lynch, Goldman Sachs, Barclays, BMO, CIBC, Citigroup, Deutsche Bank, Morgan Stanley, RBC, Scotia and TD were the joint bookrunners.

The Vancouver, B.C.-based developer and miner of steelmaking coal and zinc plans to use the proceeds to fund tender offers for up to $1 billon of its 3.15% notes due 2017, 3.85% notes due 2017, 2½% notes due 2018 and 3% notes due 2019, with any remaining proceeds to be used for general corporate purposes.

Realogy drives through

The session’s sole drive-by came from Realogy Holdings, which priced a $500 million issue of non-callable 4 7/8% seven-year senior notes (Ba3/BB-) at 99.269 to yield 5%.

The yield printed on top of yield talk in the 5% area, which was also the initial yield guidance on the quick-to-market deal.

The book size was $700 million, the portfolio manager said.

JP Morgan, Credit Suisse and Goldman Sachs were the joint bookrunners.

The Madison, N.J.-based residential real estate franchising and brokerage services provider plans to use the proceeds to reduce outstanding borrowings under its revolving credit facility, with the remaining proceeds to be used for general corporate purposes, which may include additional debt transactions.

Cengage downsized

Cengage Learning priced a downsized $620 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 9½%.

The issue size was decreased from $640 million after having previously been decreased from $740 million. The concurrent term loan was upsized to $1.71 billion from $1.59 billion.

The yield printed at the wide end of the upwardly revised 9¼% to 9½% yield talk. Earlier talk was set at 9% to 9¼%.

Morgan Stanley, Credit Suisse, BMO, Citigroup, Goldman Sachs, Wells Fargo, Deutsche Bank and KKR were the joint bookrunners.

The Boston-based educational content, technology and services company plans to use the proceeds to retire its existing term loan and pay a special dividend to the shareholders.

EMI prints 7 5/8%

EMI Publishing Group North America Holdings Inc. priced a $350 million issue of eight-year senior notes (B3/B) at par to yield 7 5/8%.

The yield printed in the middle of the 7½% to 7¾% yield talk.

Goldman Sachs was the left bookrunner for the debt refinancing. UBS was the joint bookrunner.

Gogo cancels

Apart from the deals that went down on Thursday, the market buzzed with news that Gogo Intermediate Holdings LLC canceled the $525 million issue of six-year senior secured notes (B2/B-) which it priced on May 23 amid negotiations with a potential new customer for its services.

On the heels of the move, as Gogo’s stock (Nasdaq: GOGO) shot 16% higher in Thursday trading, there were players scrambling to unwind bond trades, sources said.

A trader expressed some surprise at the news, noting that “there have already been trades in that” which would now have to be unwound.

However, he said that there had not been very much real activity in those 12% senior secured notes due 2022, estimating “maybe about 15 trades” over the course of Monday, Tuesday and Wednesday.

“They were bid at 101 3/8 yesterday [Wednesday] – but then everything stopped on a dime.”

The notes were scheduled to close on Thursday – but the company canceled the issue amid negotiations with a potential new customer for its services.

Proceeds from the deal, which was led by Morgan Stanley & Co., were to be used to repay debt and fund capital expenditures.

Daily inflows on Wednesday

As the market awaited news on cash flows for dedicated high-yield bond funds to Wednesday’s close – numbers that routinely circulate late Thursday – Wednesday’s daily flows were decidedly positive, a trader said.

High-yield ETFs saw $434 million of inflows on the day.

Actively managed funds saw $120 million of inflows on Wednesday.

Meanwhile flows for dedicated bank loan funds were also positive on Wednesday, seeing $110 million of cash coming in on the day.

New issues remain dominant

In the secondary market, a trader said that “the new issues were pretty much dominating things today,” with the non-new-issue portion of the market “largely on the back burner.”

Teck trades up

Perhaps the most dominant credit of all was the new Teck Resources 8% notes due 2021, with a trader quoting the bonds at 102½ bid, well up from their par issue price, with over $109 million of the new paper having changed hands.

Another trader quoted those notes as high as a 103 to 103½ bid context earlier in the afternoon, although at another desk, the bonds were seen at 102½ bid, 102¾ offered.

The other half of Teck’s deal, the 8½% notes due 2024, were seen having also pushed up to a 102½ to 103 bid context, although not on quite so heavy a volume.

The company’s existing 4¾% notes due 2022 also saw some activity, a trader said, gaining nearly 3 points on the day to finish at 82 bid, on volume of over $17 million.

EMI notes improved

EMI’s new 7 5/8% notes due 2024, which priced earlier in the session, were seen by a trader at 101¾ bid, 102¼ offered.

A second trader saw the bonds at 102 bid, but said that there didn’t seem to be much volume in the relatively modest-sized $350 million issue.

TransDigm, MultiPlan busy

Among recently priced offerings, a trader noted with amazement the heavy volume in Wednesday’s offering of 6 3/8% senior subordinated notes due 2026 from TransDigm Inc.

“My goodness,” he said, “there were over a hundred [$1 million] trades.”

He quoted the Cleveland-based aircraft components manufacturer’s issue “up perhaps 1/8” from the par level at which that $950 million quick-to-market deal had priced.

Another trader saw the bonds at 100 3/16 bid, calling that down 1/16 from where the notes had finished on Wednesday after their pricing.

MultiPlan Inc.’s 7 1/8% notes due 2024 also saw considerable volume, with a market source estimating that over $40 million of that paper changed hands.

He saw the New York-based health-cost solutions provider’s deal at 102 3/8 bid, calling that down 3/8 point from where the bonds had finished on Wednesday after the downsized $1.1 billion offering had priced at par.

A second trader noted that the notes had gotten as good as 103 bid in their initial aftermarket dealings “but they pulled back a little today,” ending in a 102 to 102½ bid context, he said.

Steel strengthens on U.S. move

Away from the new deals, traders noted brisk activity in the bonds of domestic steelmakers such as U.S. Steel and AK Steel, as well as ArcelorMittal, which, while headquartered in Luxembourg, has a substantial manufacturing presence in the United States, having bought up the remnants of many failed former American steel companies over the past decade.

“The U.S. imposed anti-dumping tariffs on China, and that’s positive for the whole steel structure,” one trader said.

He noted that U.S. Steel’s recent issue of 8 3/8% notes due 2021 were up over 1 point, pegging the bonds around a 103 to 104 bid context. Over $22 million of those notes changed hands.

Another trader had them at 103½ bid, calling that nearly a 2 point gain.

The Pittsburgh-based integrated steel maker had sold $980 million of the notes, pricing them at par back on May 3.

West Chester, Ohio-based sector peer AK Steel’s 7 5/8% notes due 2020 gained more than 3 points, pushing up to 82¼ bid, on volume of over $10 million.

Another trader saw Arcelor Mittal’s 5¼% notes due 2020 up ¾ point at 103¼ bid.

The U.S. Commerce Department announced that it was imposing anti-dumping and anti-subsidy duties of up to 450% on corrosion-resistant steel from China.

The department also said that it would impose anti-dumping duties of 3% percent to 92% on producers of corrosion-resistant steel coming from Italy, India, South Korea and Taiwan.

Separately, the U.S. International Trade Commission announced that it has launched an investigation into U.S. Steel’s allegations that the company’s Chinese competitors had stolen its trade secrets via computer hacking, had fixed prices and had misrepresented the origin of their exports to the United States.

China criticized both American government actions.

Indicators turn mixed

Statistical market performance measures turned mixed on Thursday, after having been higher on both Tuesday and Wednesday. It was the second mixed session in the last four trading days.

The KDP High Yield Daily Index rose by 9 basis points Thursday to 67.55, its third straight gain and fourth in the last five sessions. On Wednesday it had jumped by 22 bps.

Thursday’s yield came in by 4 bps, to 6.18%, its third straight narrowing. On Wednesday, the yield had tightened by 7 bps.

But the Markit Series 26 CDX North American High Yield Index moved lower on Thursday for the first time after four straight sessions on the upside, losing 1/8 point to close at 102 29/32 bid, 102 15/16 offered. On Wednesday, it had gained 13/32 point.

However, the Merrill Lynch North American High Yield Master II Index kept moving higher, posting its fifth straight advance on Thursday following two successive setbacks, making it seven gains in the last nine sessions. The index firmed by 0.130% on top of Wednesday’s 0.283% strengthening.

The latest gain lifted its year-to-date return to 7.994%, the index’s third consecutive new peak level for the year. That was up from the 7.854% on Wednesday, the previous zenith.

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